Effects of R&D and foreign technology transfer on productivity and innovation: an enterprises-level evidence from Bangladesh

This paper examines the effects of in-house Research and Development (R&D) efforts and access of foreign technology on productivity and innovation for the Bangladeshi manufacturing firms. The Bangladesh case is important because its manufacturing sector has performed stunningly well in recent years. At the first stage of analysis, we apply the Kernel density technique, which indicates that firms of R&D and foreign technology acquirers perform better in productivity. Subsequently, a more comprehensive regression analysis confirms that R&D firms have a total factor productivity (TFP) superiority; however, it is not very sizable. While the use of foreign technology has a larger effect on TFP, some results also indicate that there is a substitutive relationship between in-house R&D and technology transfer activities. Our results further point out that firms which engaged in both activities, R&D and foreign technology transfer, have a lesser labour productivity. Our results on product innovation also provide some important insights. Specifically, the estimated elasticity suggests that firms that engage in R&D have around 0.30 higher probability of product innovation. But, the effects of foreign technology on product innovation could not be established. We also test the effect of R&D capital and intensity on innovation. Both are not found to be crucial implying that the dynamic effect of R&D is not working for product innovation activities.